Death, Real Estate, and Estate Tax

Last updated on May 25, 2016 by Cherry Vi Saldua Castillo | Filed Under: Estate
Tax, Real Estate Taxes

The topic of death is usually taboo on ordinary days except the start of November when we
remember our dead on All Saints and All Souls Day, or when we are jolted by the death of
a close friend or relative. We must accept, though, that we will all die it is just a matter of
time. With death, estate taxes must be settled, and we will discuss this here.

In times of death, we still need to pay our taxes

When someone passes away, loved ones left behind are usually overwhelmed with
emotions and are unable to do anything. I know this from experience. But, there are
certain things that need to be done, and someones got to do them. Someone has to
arrange for the embalming, the wake, the casket, the interment or cremation, the burial
plot (incidentally, there are a lot of foreclosed memorial lots) and the gravestone, among
others.

And of course, someone has to take care of theestate tax.

Note: For the rest of this article, we will use the terms decedent or deceased person
to refer to the person who died.

What is Estate Tax?

Estate tax is imposed on the transfer of the net estate, which is the difference between
the gross estate (as defined under Section 85 of the Tax Code) and allowable
deductions (under Section 86) of the decedent. Estate tax rates are graduated and
depend on the net estate amount.

Net Estate = Gross Estate Deductions

Real property may not be transferred from the decedent to his or her heirs without the
filing of the estate tax return and payment of the estate tax. Non-payment of estate tax
is common and this brings about many problems when the properties need to be
transferred to the names of buyers.

What to do when someone has died

Estate tax-wise, these are the things that need to be done:
1. File a Notice of Death with the Bureau of Internal Revenue within two monthsafter
the date of death. This is applicable when the gross value of the estate exceeds
P20,000.00. This should be filed by the executor or administrator of the estate, or any
of the legal heirs. It shall be filed with the RDO where the decedent was domiciled at
the time of his death. There is no specific format.
2. Get a Tax Identification Number (TIN) for the Estate of the deceased person by
using BIR Form No. 1901. Use this TIN when filing the Estate Tax Return (BIR Form
No. 1801).
3. Prepare the list of assets and liabilities of the decedent. Get the fair market values of
the properties at the time of death.
4. Prepare the supporting documents for the assets and liabilities, as well as the
deductions you are going to take. You will need these for the estate tax computation
and as attachments to the Estate Tax Return.
a. Certified true copy of the Death Certificate
b. Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for
deaths occurring on or after Jan. 1, 1998; or if the gross estate exceeds P3,000
for deaths occurring prior to January 1, 1998
c. Any of the following:
Deed of Extra-Judicial Settlement of the Estate, if the estate is settled
extra judicially (sample forms may be found here and here).
Court Orders/Decision, if the estate is settled judicially;
Affidavit of Self-Adjudication (sample here) and Sworn Declaration of
all properties of the Estate
A certified true copy of the schedule of partition of the estate and the
order of the court approving the same, if applicable.
d. Certified true copy(ies) of the Transfer/Original/Condominium Certificate of
Title(s) of real property(ies) (front and back pages), if applicable
e. Certified true copy of the latest Tax Declaration of real properties at the time
of death, if applicable
f. Certificate of No Improvement issued by the Assessors Office declared
properties have no declared improvement or Sworn Declaration/Affidavit of No
Improvement by at least one (1) of the transferees
g. Certificate of Deposit/Investment/Indebtedness owned by the decedent and
the surviving spouse, if applicable
 h. Photocopy of Certificate of Registration of vehicles and other proofs showing
the correct value of the same, if applicable
i. Photo copy of certificate of stocks, if applicable
j. Proof of valuation of shares of stocks at the time of death, if applicable
For listed stocks newspaper clippings or certification from the Stock
Exchange
For unlisted stocks latest audited Financial Statement of issuing
corporation with computation of book value per share
k. Proof of valuation of other types of personal property, if applicable
l. Proof of claimed tax credit, if applicable
m. CPA Statement on the itemized assets of the decedent, itemized deductions
from gross estate and the amount due if the gross value of the estate exceeds two
million pesos, if applicable
n. Certification of Barangay Captain for claimed Family Home
o. Duly notarized Promissory Note for Claims against the Estate arising from
Contract of Loan
p. Accounting of the proceeds of loan contracted within three (3) years prior to
death of the decedent
q. Proof of the claimed Property Previously Taxed
r. Proof of claimed Transfer for Public Use
s. Copy of Tax Debit Memo used as payment, if applicable
2. Compute the net estate and estate tax.
3. File the Estate Tax Return and pay the estate taxes.
4. Follow the procedure for transferring real properties to the name of the heirs (this will
be discussed in a separate post).
5. Follow the procedure for cancellation of the TIN of the decedent as discussed in
Section 12 of Revenue Regulations No. 7-2012. Use BIR Form No. 1905 for the
cancellation of TIN.
Gross Estate
Gross estate is the value at the time of death of all property, real or personal, tangible
or intangible, wherever situated. In the case of a nonresident decedent who at the time
of his death was not a citizen of the Philippines, only that part of the entire gross estate
which is situated in the Philippines shall be included in his taxable estate.

The value of the properties shall be based on their fair market value (FMV) as of
the time of death.
If the property is a real property, the FMV shall be the higher between the BIR zonal
valuation and FMV per tax declaration (I paraphrased this).

Please also note that also included in the computation of the gross estate are interest or
share in a property, transfers in contemplation of death, and revocable transfers.

The proceeds of life insurance are included in the gross estate unless the beneficiary is
designated as irrevocable).

Deductions from gross estate

1. Expenses, Losses, Indebtedness, and Taxes (ELIT)
a. Funeral expenses Lowest among:

o Actual funeral expenses;

o 5% of the gross estate; and
o P200,000.00.
b. Judicial expenses of the testamentary and intestate proceedings

c. Claims against the estate

o At the time the indebtedness was incurred, the instrument was duly notarized;
and
o If the loan was contracted within three (3) years before the death of the
decedent, the administrator or executor shall submit a statement showing the
disposition of the proceeds of the loan
d. Claims of the deceased against insolvent persons

e. Unpaid mortgages, etc.

2. Property Previously Taxed (Vanishing deduction)

2. Transfers for Public Use
o The amount of all bequests, legacies, devises or transfers to or for the use of
the Government of the Republic of the Philippines, or any political subdivision thereof,
for exclusively public purposes.
4. Family Home
o Fair Market Value of the Family Home or P1 million, whichever is lower.
o As a condition for the exemption or deduction, said family home must have
been the decedents family home as certified by the barangay captain of the locality.
5. Standard Deduction P1 million (no substantiation needed)
6. Medical Expenses
o Medical expenses incurred by the decedent within one (1) year prior to his
death which shall be duly substantiated with receipts
o Maximum: P500,000.00
7. Amount received by heirs under RA 4917 (retirement benefits of employees of private
firms)
7. Share in the Conjugal Property
The net share of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property

What are the Estate Tax rates?

The estate tax rates depend on the date of death. For those who died on January 1,
1998 and onwards, the following are the estate tax rates based on the net estate:

Over But not over The tax shall Plus Of the excess
be over
0 200,000 Exempt
200,000 500,000 0 5% 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000

If the decedent died between July 28, 1992 to December 31, 1997, the following are the
applicable estate tax rates based on the net estate amount:

The Tax Of the Excess

Over But not Over Plus
Shall be Over

P 200,00.00 0%

P200,000.00 500,000.00 5% P 200,000.00

 500,000.00 2,000,000.00 P 15,000.00 8% 500,000.00

2,000,000.00 5,000,000.00 135,000.00 12% 2,000,000.00

5,000,000.00 10,000,000.00 495,000.00 21% 5,000,000.00

10,000,000.00 1,545,000.00 35% 10,000,000.00

If the decedent died between January 1, 1973 and July 27, 1992, the following are the
applicable estate tax rates based on the net estate amount:

The Tax Of the Excess

Over But not Over Plus
Shall be Over

P 10,00.00 Exempt

P 10,000.00 50,000.00 3% P 10,000.00

50,000.00 75,000.00 P 1,200.00 4% 50,000.00

750,000.00 100,000.00 2,200.00 5% 75,000.00

100,000.00 150,000.00 3,450.00 10% 100,000.00

150,000.00 200,000.00 8,450.00 15% 150,000.00

200,000.00 300,000.00 15,950.00 20% 200,000.00

300,000.00 400,000.00 35,950.00 25% 300,000.00

400,000.00 500,000.00 60,950.00 30% 400,000.00

500,000.00 625,000.00 90,950.00 35% 500,000.00

625,000.00 750,000.00 134,700.00 40% 625,000.00

 750,000.00 875,000.00 184,700.00 45% 750,000.00

875,000.00 1,000,000.00 240,950.00 50% 875,000.00

1,000,000.00 2,000,000.00 303,450.00 53% 1,000,000.00

2,000,000.00 3,000,000.00 833,450.00 56% 2,000,000.00

3,000,000.00 1,393,450.00 60% 3,000,000.00

If the decedent died between September 15, 1950 to December 31, 1972, the following
are the applicable estate tax rates based on the net estate amount:

From To ESTATE INHERITANCE

5,000.00 0 5,000.00 Exempt Exempt

7,000.00 5,000.00 12,000.00 1.0% 2&

18,000.00 12,000.00 30,000.00 2.0% 4%

20,000.00 30,000.00 50,000.00 2.5% 6%

30,000.00 50,000.00 70,000.00 3.0% 8%

Sample computations
Please refer to BIR Revenue Regulations No. 2-2003 for sample computations.

When is an Estate Tax return required to be filed?

When the gross value of the estate exceeds P200,000 (though exempt from tax); or
Regardless of the gross value of the estate, where the said estate consists of
registered or registrable property such as real property, motor vehicle, shares of stock,
 or other similar property for which a clearance from the BIR is required as a condition
precedent for the transfer or ownership thereof in the name of the transferee
When to file and pay
Within six (6) months from the decedents death;
Unless an extension of time is requested in cases where the payment of the tax will
result in undue hardship on the heirs
Not to exceed 5 years in case the estate is settled through the courts;
Not to exceed 2 years in case the estate is settled extrajudicially.
Penalties for late payment
The penalties shall include 25% surcharge and 20% interest per year (Under Secs. 248
and 249, respectively). If fraud is involved, the surcharge shall be 50%. You may also
pay compromise penalties in lieu of imprisonment, which can be viewed at the BIRs
website through the following link: Schedule of compromise penalties.

BIR Form to be used

BIR Form No. 1801 (Estate Tax Return)
Where to file
The Authorized Agent Bank (AAB), Revenue District Officer (RDO) or duly
authorized Treasurer of the city or municipality where the decedent was domiciled at
the time of his death; or
If there be no legal residence in the Philippines, with the Office of the Commissioner.
How to Get A BIR Certificate Authorizing Registration
(CAR)
The Registry of Deeds will not allow you to transfer the title of real properties of a
deceased person if there is no BIR CAR. Please make sure that you have the
documents as enumerated in the Checklist of Documentary Requirements (CDR) for
Estate Tax, which can be found in Annex A-6 and A-6.1 of Revenue Memorandum Order
(RMO) No. 15-03 (see pages 7 to 9).

To help you determine the computation for the estate tax due, you may refer to
theONETT (One-Time Transaction) Computation Sheet, in Annex B-3 (pages 16 and
17) also of RMO No. 15-03. Please also check the sample computations in BIR RR No.
2-2003 and BIR Form No. 1801.

Further reading
For better understanding of estate taxes, I urge you to read the following:

1. Overview on Estate Tax

2. Sections 84 to 97 of the 1997 Philippine Tax Code
3. Revenue Regulations 2-03 (Estate Tax and Donors Tax Regulations)
4. Estate Tax Return (BIR Form No. 1801, front and back pages)
~~~

Thank you for reading and I hope this helps you. Should you have questions, please
read the estate tax-related documents I mentioned in my post, just follow the links
provided. Related post: Donors Tax as an estate planning tool